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February 18, 2005
Senate Fight Awaits Bankruptcy Overhaul
A fight lies ahead on the Senate floor for the bankruptcy overhaul
measure that was approved yesterday by the Senate Judiciary Committee on
a 12–5 vote. Three of the committee’s eight
Democrats—Sens. Joseph Biden of Delaware, Dianne Feinstein of
California and Herb Kohl of Wisconsin—voted with the Republican
majority. But Democrats have prepared amendments that would protect
employees of bankrupt companies and exempt military personnel from new
restrictions on filing for bankruptcy. Democrats plan to offer several
amendments when the Senate takes up the bill, including an amendment by
Sen. Charles Schumer (D–N.Y.) that would prohibit protesters from
using bankruptcy to avoid paying court fines for blocking abortion
clinics if the demonstrators knowingly violated the law—an
amendment that has prevented the reform measure from passing in recent
years. “I will do everything I can to hold this bill up in every
way,” said Schumer, the Associated Press reported. Sen. Orrin
Hatch (R–Utah), who stood in as committee chairman for Sen. Arlen
Specter (R–Pa.) yesterday, told his colleagues: “We know the
(Senate) floor is going to be an ordeal.”
Cornyn to Push Corporate Amendment on Bankruptcy Bill
Prompted by his experience as Texas attorney general during the Enron
scandal, Sen. John Cornyn (R–Texas) said Thursday that he plans to
push for an amendment to the Senate bankruptcy bill to prevent corporate
debtors from “shopping” for bankruptcy judges in far-away
jurisdictions, CongressDaily reported. Cornyn said a
loophole allows corporate debtors to pick jurisdictions where judges are
likely to rule in their favor. “Because of judge-shopping in our
bankruptcy courts, there’s been a lot of abuse,” Cornyn told
the Senate Judiciary Committee, which later approved Finance Chairman
Charles Grassley’s (R–Iowa) bipartisan bankruptcy bill on a
12–5 vote. Cornyn, who supports Grassley’s bill, withheld
his amendment during the committee’s meeting but said he plans to
offer it during the Senate floor debate. Majority Leader Bill Frist
(R–Tenn.) has said he expects to move the bill to the floor after
Congress returns from the Presidents’ Day recess.
The amendment mirrors a stand-alone bill Cornyn introduced last week
with Sen. Dianne Feinstein (D–Calif.). The legislation would allow
a corporate debtor to file for bankruptcy only in the jurisdiction that
houses its principal place of business or principal assets. It also
would bar companies from filing for bankruptcy through a subsidiary in a
distant state. During his tenure as Texas attorney general, Cornyn
argued the Enron bankruptcy should be litigated in Houston, where the
company was headquartered and had 7,500 employees, the newswire
reported. Instead, all of the proceedings were litigated in New York,
then home to an Enron subsidiary with 57 employees. Cornyn has said
costs and inconveniences resulting from that type of jurisdictional
shift make it difficult for a corporate debtor’s employees,
retirees, shareholders, creditors and customers to obtain fair
compensation from the bankruptcy proceedings.
Backers: Class-action Win Clears Way for Malpractice, Asbestos
Measures
As business groups celebrated Thursday’s House passage of
legislation overhauling the rules for class-action lawsuits, they said
its enactment bodes well for other litigation-related bills, including
medical malpractice limits and asbestos legislation,
CongressDaily reported. “If class action shows us
anything, it shows that perseverance pays off,” Stanton Anderson,
executive vice president of the U.S. Chamber of Commerce and chairman of
the Class Action Fairness Coalition, said after the House approved the
legislation, 279–149. President Bush plans to sign it today.
Noting that he has worked “almost full-time for the past three
years” on the class-action bill, Anderson said its enactment will
create momentum in Congress for the asbestos and malpractice bills. Sen.
Christopher Dodd (D–Conn.), who co-sponsored the class-action
bill, said last week that its passage “does not mean that every
tort reform measure that comes before us ought to be
supported.”
U.S. Jobless Claims Fall, Import Prices Up
The number of Americans claiming initial jobless benefits fell
unexpectedly last week in a show of strength for the U.S. labor market,
while an energy-driven rise in import prices offered mixed signals on
inflation pressures, Reuters reported. First-time claims for state
unemployment insurance dropped 2,000 to 302,000 in the week ended Feb.
12, the Labor Department said on Thursday. It was the third straight
weekly decline and defied Wall Street expectations of a rise to 315,000.
The Labor Department said last week’s decrease brought new jobless
claims to the lowest level since October 2000, before the economy tipped
into recession. U.S. Treasury debt prices, already down, added to their
losses as the surprisingly strong jobless report and a hint of imported
inflation made it a little more likely the Federal Reserve would keep
raising interest rates.
U.S. Judge Says No YUKOS Ruling Until Next Week
A U.S. judge told lawyers from Russian oil company YUKOS and Deutsche
Bank AG on Thursday that she would not rule before next Tuesday on
whether to allow YUKOS’ bankruptcy case in the United States to
proceed, Reuters reported. YUKOS, which has been under seige by the
Kremlin, made its surprise bankruptcy filing in the United States in
December in a last ditch effort to prevent its breakup. The filing in a
U.S. Bankruptcy Court has been challenged as improper by Deutsche Bank.
“I do anticipate ruling on it pretty promptly, however I do not
anticipate ruling on it before next Tuesday,” U.S. Bankruptcy
Judge Letitia Clark said at the conclusion of the two-day hearing on
jurisdiction. In closing arguments, YUKOS said the company would not get
a fair hearing if it filed bankruptcy in Moscow, and said Russian
authorities had illegally levied a $27.5 billion back tax bill on it.
Deutsche Bank argued that the company had gone hunting for a friendly
court, and that the U.S. court should not intervene in a dispute between
a Russian company and the Russian government.
Ex-Testa Lawyers File to Put Firm into Chapter 11
A group of eight former lawyers with Boston-based Testa, Hurwitz
& Thibeault on Thursday filed to take their former employer into
involuntary chapter 11 bankruptcy, an unusual move that could complicate
the firm’s plans to liquidate, Reuters reported. The chapter 11
petition, filed Feb. 17 in the U.S. Bankruptcy Court for the Eastern
District of Massachusetts, seeks to compel Testa Hurwitz to undertake
its liquidation under court supervision, according to court papers.
Formerly a 287-lawyer firm known for its expertise in advising
technology and growth companies, Testa Hurwitz voted on Jan. 14 to
disband in a surprise move that jolted the close-knit technology world
in the Boston area, the newswire reported. The move to disband was
prompted by an exodus of lawyers to competitors starting last year,
which complicated efforts to find a merger partner for the firm, a firm
spokesman said. The former Testa Hurwitz lawyers have individual claims
against the firm ranging up to $500,000, according to court filings. All
had left the firm in the last few years, with the most recent leaving
last September. The petitioners’ lawyer said his clients were
concerned that their claims wouldn’t be paid in Testa
Hurwitz’s private liquidation process, prompting them to file to
force the firm into an involuntary chapter 11.
Spiegel Closer to Emerging from 2-year Bankruptcy
Nearly two years after its financial collapse, Spiegel Inc. moved
closer to emerging from bankruptcy yesterday, thanks to a settlement
that the retailer is expected to reach with its controlling shareholder,
the Chicago Tribune reported. Spiegel, a Chicago-born
catalog company whose last remaining asset is the Eddie Bauer casual
clothing chain, plans to file a plan of reorganization as early as
today, said David LeMay, a Chadbourne & Parke lawyer
representing the unsecured creditors’ committee. The plan proposes
giving ownership of the 140-year-old company to its creditors, which
consist mostly of U.S. and German banks, LeMay said, the Tribune
reported. “The creditors’ committee is enthusiastic about
Eddie Bauer and taking an ownership role,” he said, noting that
the company emerging from bankruptcy will likely drop the Spiegel name
and opt for something that includes Eddie Bauer. Spiegel filed for
bankruptcy with more than $1.5 billion in debts in March 2003, hit hard
by shrinking sales, credit card defaults and Securities and Exchange
Commission charges that executives fraudulently withheld from investors
concerns about the company’s financial status.
Delta Executive Says Restructuring Outside of Bankruptcy Was Right
Move
A Delta Air Lines Inc. executive said Thursday the struggling
carrier’s decision to restructure outside of bankruptcy was the
right move and will enable it to focus precious time on its
transformation plan, the Associated Press reported. During an investor
conference in New York, CFO Michael Palumbo said a chapter 11 filing,
avoided when pilots agreed to concessions in November, would have caused
“wear and tear on employees, business partners, customers and
ultimately the capital markets.” Palumbo acknowledged that losses
at the nation’s third-largest carrier have continued to mount in
the months since pilots agreed to $1 billion in annual cost savings. But
he said that if the company were to file for bankruptcy, it would have
to spend much of its time on the court process and would not be able to
follow through on its strategic goals. “If consolidation occurs in
this industry, you’re not likely to be an acquirer in bankruptcy,
you’re likely to be a target during that time,” he said, the
newswire reported.